AI Drafter 
TaxTMI 
TaxTMI 
1990 (3) TMI 358
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to date (hereinafter referred to as the 'Act'). The petitioners do not, and cannot, challenge the validity of the subsection by reason of Article 3 lB of the Constitution of India. By the impugned orders, the Central Government fixed the prices of levy sugar for 1974-75 production. For the purpose of determining the prices, the country is divided into 16 zones, and the prices fixed for various grades of sugar in terms of section 3 (3-C) of the Act vary from ' zone to zone. Prices are determined with reference to the geographical-cum-agro-economic considerations and the average cost profiles of factories located in their respective zones. Each State for this purpose constitutes a separate zone, while U.P. is divided into 3 zones and Bihar into 2 zones. The petitioners contend that these orders are ultra vires the Act and violative of their fundamental fights as the prices of levy sugar have been determined arbitrarily with reference to the average cost profiles of factories grouped together in zones without regard to their individual capacity and cost characteristics. Such prices do not reflect the actual manufacturing cost of sugar incurred by producers like the petiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....abour, cane price (accounting for about 70 per cent of the cost of sugar production), quality of sugarcane, taxes on sugarcane, cost of other material, transport charges, cost of storing the sugar produced, cane development charges and other overhead expenses, selling expenses etc. These factors are almost identical for the entire zone. The cost of manufacturing sugar, the respondents contend, depends not only on recovery from the sugarcane, duration of crushing season, crushing capacity of the plant, the sugarcane price paid and the capital employed, as stated by the petitioners, but also to a considerable extent on the condition of the plant and machinery, quality of management, investment policy, relations with cane growers and labour, financial reputation etc. They say: "It is evident from the Tariff Commission Report of 1959, as also the Official Directory of the Bombay Stock Exchange, that the petitioner Company has been consistently diverting huge amounts for investments running into several lakhs elsewhere instead of ploughing back the same into the petitioner's sugar industry in question. Thus, the petitioner Company has been neglecting the sugar factory and for suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; "As was seen during the course of hearing only 2 or 3 persons have come forward challenging zoning. There are 389 sugar factories in the country and the present intervener has 166 members. Besides there are 220 members with the cooperative sector. Their Association being National Federation of Cooperative Sugar Factories Ltd., has also intervened in these petitions and have adopted the arguments of ISMA. Hence almost the entire industry has supported zoning and only a handful of people who also factually are not high-cost units have opposed zoning." Mr. Venugopal submits that the present case is squarely covered by the decisions of this Court in Anakapalle Cooperative Agricultural & Industrial Society Ltd. etc. etc. v. Union of India & Ors., [1973] 2 SCR 882 and The Panipat Cooperative Sugar Mills v. The Union of India, [1973] 2 SCR 860. He says that the petitioners have not made out a case for reconsideration of these two decisions. He refers to T. Govindaraja Mudaliar etc. etc. v. The State of Tamil Nadu & Ors., [1973] 3 SCR 222 at 228 to 230 and submits that this Court would not reexamine an earlier decision merely....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... right policy, poor management and planning etc., but these reasons have no relation to the zonal system. That system by and large has led to efficiency and provides an incentive to cut down the cost. Healthy competition among the units in the same zone should in the normal. course result in reduction of cost and greater efficiency in the operation of the units. It is proper management and planning that would lead to the success of any commercial venture. The contention of the producers that they have been incurring losses on account of the zonal system is opposed to the evidence produced by them. The Court has rejected the extreme contention that prices should be fixed unitwise, i.e., on the basis of actual cost incurred by each unit. Referring to this contention, this Court observes: "Apart from the impracticability of fixing the prices for each unit in the whole country, the entire object and purpose of controlling prices would be defeated by the adoption of such a system." Grover, J. states that, during the earlier period of price control, it was on an all India basis that the price was fixed. That is stil....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... different zones are either not recognised as valid principles for fixing prices or that simply because in case of some factories the actual cost was higher than the one fixed for the zone in which that factory was situate the fixation of price became illegal and was not in accordance with the provisions of sub-section (3-C). It has not been denied that the majority of sugar producers have made profits on the whole and have not suffered losses. It is only some of them which assert that their actual cost is far in excess of the price fixed. That can hardly be a ground for striking down the price fixed for the entire zone provided it has been done in accordance with the accepted principles ..... ". The Court concludes: "When prices have to be fixed not for each unit but for a particular region or zone the method employed by the Commission was the only practical one and even if some units because of circumstances peculiar to them suffered a loss the price could not be so fixed as to cover their loss. That cannot possibly be the intention of the Parliament while enacting sub-section (3-C) of section 3 of the Act. If tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) would have to be built." So stating, Shelat, J. rejects the contention that such price has to be determined unit-wise. Any such fixation of price, he points out, would be contrary to the concept of partial control postulated by the subsection and would perpetuate inefficiency and mismanagement. But, of course, any such price, he hastens to add, has to be fixed reasonably and on relevant considerations. Referring to the policy of partial control, Shelat, J. states: " ..... the Central Government was confronted with two main problems (a) deterioration in the sugar industry, and (b) the conflicting interests of the manufacturer, the consumer and the cane grower. The floor price of cane fixed by Government was intended to protect the farmer from exploitation, but that was found not to be an incentive enough to induce him to increase his acreage. A device had to be found under which a price higher than the minimum could be paid by the manufacturer of sugar. The consumer, on the other hand, had also to be protected against the spiralling of sugar price and his needs, growing as they were, had to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e output of sugar is acquired and the balance left for free sale. It is in implementation of this policy that subsection (3-C) of section 3 was inserted2 Before we examine the provisions of that sub-section under which the impugned notification have been issued, we shall refer to the statutory scheme. The Act was, as stated in the preamble, enacted by Parliament "to provide, in the interest of the general public, for the control of the production, supply and distribution of, and trade and commerce in, certain commodities". The entire Act is devoted to the cause of the general public with a view to achieving equitable distribution of essential commodities at fair prices. Section 3 of the Act confers wide power upon the Central Government to control production, supply, distribution, etc., of essential commodities. It reads: "3. Powers to control production, supply, distribution, etc., of essential commodities--(1) If the Central Government is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.................................... (f) for requiring any person holding in stock, or engaged in the production, or in the business of buying or selling of any essential commodity ,-- (a) to sell the whole or a specified part of the quantity held in stock or produced or received by him, or (b) in the case of any such commodity which is likely to be produced or received by him, to sell the whole or a specified part of such commodity when produced or received by him, to the Central Government or a State Government or to an officer or agent of such Government or to a Corporation owned or controlled by such Government or to such other person or class of persons and in such circumstances as may be specified in the order." The power contained in sub-section (1) or sub-section (2) is exercisable by an order. An 'order' is defined under section 2 to include a direction issued thereunder. Any order made under section 3 by the Central Government or by an officer or authority of the Central Government is required by sub-section (6) of section 3 to be laid before both Houses of Parliament, as soon as may be, after it is made. Any order made under section 3 which is of a genera....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by him is not liable to be questioned in any court. Sub-section (3-C) which is the crucial provision, was inserted in 1967. It reads: "(3-C). Where any producer is required by an order made with reference to clause (f) of sub-section (2) to sell any kind of sugar (whether to the Central Government or a State Government or to an officer or agent of such Government or to any other person or class of persons) and either no notification in respect of such sugar has been issued under sub-section (3-A) or any such notification, having been issued, has ceased to remain in force by efflux ot time, then, notwithstanding, anything contained in subsection (3), there shall be paid to that producer an amount therefore which shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to-- (a) the minimum price, if any, fixed for sugarcane by the Central Government under this section; (b) the manufacturing cost of sugar; (c) the duty or tax, if any, paid or payable thereon; and (d) the securing of a reasonable return on the capital employed in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as the Central Government may, by order, determine, having regard to the four factors set out in cls. (a), (b), (c) and (d). Unlike the preceding three sub-sections under which the amount payable is either the agreed price, or the controlled price, or where neither of these prices is applicable at the market or average market price, the amount in respect of sugar required to be sold is to be calculated at the price determined by th Central Government ...... " What is specially significant is that sub-section (3-C) postulates payment of an amount to the producer who has been required to sell sugar in the circumstances mentioned therein. What is required to be paid to him is not the price of sugar, but only an amount. That amount has to be calculated with reference to the price of sugar. The "price" is determined by the Central Government by means of an order which, as required by sub-sections (5) and (6), has to be notified in the official gazette and laid before both Houses of Parliament. The order notifying the "price of sugar" is of general application and it is the rate at which the actual "amount" payable to each seller is calculated. The price of sugar must be determined by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the time when subsec. 3C was inserted in the Act. The legislature therefore incorporated the same formula in the new sub-section as the basis for working out the price. The purpose behind enacting the new sub-section was three-fold, to provide an incentive to increase production of sugar, encourage expansion of the industry, to devise a means by which the cane producer could get a share in the profits of the industry through prices for his cane higher than the minimum price fixed and secure to the consumer distribution of at least a reasonable quantity of sugar at a fair price. ' ' Clauses (a) to (d) of sub-section (3-C) postulate that the price of sugar must be determined having regard to the minimum price, if any, fixed for sugarcane by the Central Government, the manufacturing cost of sugar, the duty or tax applicable in the zone, and the securing of a reasonable return on the capital employed in the business of manufacturing sugar. Referring to clause (d) of sub-section (3-C), this Court observes in Panipat (supra): "It is clear from the reports of the Tariff Commission that a reasonable return recommended ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out that the petitioners have not furnished any data to show that the prices determined by the Government would have been different had the ingredients of clauses (a) to (d) of the sub-section been examined with reference to each individual producer instead of a representative cross section of manufacturing units. Be that as it may, the expression "having regard to" must be understood in the context in which it is used in the statute. See Union of India v. Kamlabhai Harjiwandas Parekh & Ors., [1968] 1 SCR 463 at 471. These words do not mean that the Government cannot, after taking into account the matters mentioned in clauses (a) to (d), consider any other matter which may be relevant. The expression is not "having regard only to" but "having regard to". These words are not a fetter; they are not words of limitation, but of general guidance to make an estimate. The Government must, of course, address itself to the questions to which it must have regard, and, having done so, it is for the Government to determine what it is empowered to determine with reference to what it reasonably consider to be relevant for the purpose. The Judicial Committee in Commissioner of Income Tax v. Willi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had to" the facts which the Court may thus take cognizance of are to be "a guide, and not a fetter". This Court speaking through one of us (Beg, J., as he then was), has expressed the same opinion in the case of Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1 SCR 956. Says the learned Judge at page 959: "The expression "having regard to" only obliges the Government to consider as relevant data material to which it must have regard"." In State of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC 59, one of us (Mukharji, J., as he then was) observed: "The expression "having regard to" only obliges the government to consider as relevant data material to which it must have regard ..... ". In O'May and Ors. v. City of London Real Property Co. Ltd., [1982] 1 All E.R. 660 at 665 (H.L.), Lord Hailsham stated: "A certain amount of discussion took place in argument as to the meaning of 'having regard to' in s. 35. Despite the fact that the phrase has only just been used by the draftsman of s. 34 in an almost mandatory sense, I do not in any way suggest that the court is intended or should in any way attempt to bind the parties to the terms of the current....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the petitioners, points out that the expression 'determine' used in sub-section (3-C) indicates that the order to which that expression refers is quasi-judicial. Judicial decisions are made according to law while administrative decisions emanate from administrative policy. Quasi-judicial decisions are also administrative decisions, but they are subject to some measure of judicial procedure, such as rules of natural justice. To distinguish clearly legislative and administrative functions is "difficult in theory and impossible in practice".3 Referring to these two functions, Wade says: "They are easy enough to distinguish at the extremities of the .spectrum: an Act of Parliament is legislative and a deportation order is administrative. But in between is a wide area where either label could be used according to taste, for example where ministers make orders or regulations affecting large numbers of people ..... ,, .4 Wade points out that legislative power is the power to prescribe the law for people in general, while administrative power is the power to prescribe the law for them, or apply the law to them, in particular situations.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Justice Holmes' definition, which is what is called the "time test" and which Davis describes as one which has produced many unsatisfactory practical results, reads: "A judicial inquiry investigates, declares, and enforces liabilities as they stand on present or past facts and under laws supposed already to exist. That is its purpose and end. Legislation, on the other hand, looks to the future and changes existing conditions by making a new rule, to be applied thereafter to all or some part of those subject to its power. The establishment of a rate is the making of a rule for the future, and therefore is an act legislative, not judicial ...... Prentis v. Atlantic Cost Line Co., 211 US 210,226. The element of general application is often cited as a distinct feature of legislative activity. In the words of Chief Justice Burger, "rule-making is normally directed toward the formulation of requirements having a general application to all members of a broadly identifiable class"? Bernard Schwarts says: "an adjudication, on the other hand, applies to specific individuals or situations. Rule-making affects t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat, with the proliferation of delegated legislation, there is a tendency for the line between legislation and administration to vanish into an illusion. Administrative, quasi-judicial decisions tend to merge in legislative activity and, conversely, legislative activity tends to fade into and present an appearance of an administrative or quasi-judicial activity". Stating that rule-making is of general application to all members of a broadly identifiable class while adjudication is applicable to specific individuals or situations, the learned Judge observes: "A price fixation measure does not concern itself with the interests of an individual manufacturer or producer. It is generally in relation to a particular commodity or class of commodities or transactions. It is a direction of a general character, not directed against a particular situation. It is intended to operate in the future. It is conceived in the interests of the general consumer public. The right of the citizen to obtain essential articles at fair prices and the duty of the State to so provide them are transformed into the power of the State to fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficial gazettes notifying the prices determined for sugar of various grades and produced in various zones, and applicable to all producers of such sugar, can, in our view, be legitimately characterised as legislative. These orders are required by Sub-section (6) to be laid before both Houses of Parliament. The notified prices are applicable without exception to all persons falling within well defined groups. The prices are determined in accordance with the norms postulated in the subsection. It is with reference to such predetermined prices of sugar that the "amount" payable to each producer, who has sold sugar in compliance with an order made with reference to clause (f) of sub-section (2), is calculated. The calculation of such amount is, in contradistinction to the determination of "price of sugar", a non-legislative act. Thus, while individual consideration is relevant to the calculation of the "amount", it is not so for the determination of the "price of sugar" which is the rate at which the amount is calculated. That price, as stated in Panipat (supra) is to be arrived at by a process of costing with reference to a reasonably efficient and economic representative cross sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nment cannot fix any arbitrary price. It cannot fix prices on extraneous considerations: Renusagar, (supra). Any arbitrary action, whether in the nature of a legislative or administrative or quasi-judicial exercise of power, is liable to attract the prohibition of Article 14 of the Constitution. As stated in E.P. Royappa v. State of Tamil Nadu & Anr., [1974] 2 SCR 348, "equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch." Unguided and unrestricted power is affected by the vice of discrimination: Mrs. Maneka Gandhi v. Union of India & Anr., [1978] 1 SCC 248 at 293-294. The principle of equality enshrined in Article 14 must guide every state action, whether it be legislative, executive, or quasi-judicial: Ramana Dayaram 'Shetty v. The International Airport Authority of India & Ors., [1979] 3 SCR 1014 at 1042; Ajay Hasia & Ors. v. Khalid Mujib Sehravardi & Ors.. [1981] 1 SCC 722 and D.S. Nakara & Ors. v. Union of India, [1983] 1 SCC 305. Power delegated by statute is limited by its terms and subordinate to its objects. The delegate must act in good faith, reasonably, intra vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Ed. 1147. See also Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, [1948] 1 K.B. 223. As stated by Lord Hailsham of St. Marylebone L.C., (H.L.) in Chief Constable of the North Wales Police v. Evans, [1982] 1 WLR 1155 at 1160-61: "The function of the court is to see that lawful authority is not abused by unfair treatment and not tO attempt itself the task entrusted to that authority by the law .......... The purpose of judicial review is to ensure that the individual receives fair treatment, and not to ensure that the authority, after according fair treatment, reaches on a matter which it is authorised by law to decide for itself a conclusion which is correct in the eyes of the court". In the same case Lord Brightman says: "Judicial review, as the words imply, is not an appeal from a decision, but a review of the manner in which the decision was made". A repository of power acts ultra vires either when he acts in excess of his power in the narrow sense or when he abuses his power by acting in bad faith or for an i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve or quasi-judicial, is open to challenge if it is in conflict with the Constitution or the governing Act or the general principles of the law of the land or it is so arbitrary or unreasonable that no fair minded authority could ever have made it The impugned orders are undoubtedly based on an exhaustive study by experts. They are fully supported by the recommendations of the Tariff Commission in 1969 and 1973. It is true that these recommendations in some respects were the subject matter of criticism by a subsequently appointed expert body, viz., the BICP. Apart from the fact that the BICP's criticism has not been accepted by the Government, that criticism is not relevant in so far as the impugned orders are concerned because the latter are in regard to an earlier period. These orders are fully supported by the relevant material on record. The conclusions reached by the Central Government in exercise of its statutory power are expert conclusions which are not shown to be either discriminatory or unreasonable or arbitrary or ultra vires. The (11) See the observation of Lord Russel in Kruse v. Johnson, [1898] 2 Q.B. 91 and that of Lord Greene, M.R. in Associated Provincial Pict....
X X X X Extracts X X X X
X X X X Extracts X X X X
....abour relations, etc. These are matters on which the petitioners have not furnished data, and, in any event judicial review is hardly appropriate for their consideration. In this connection we would recall the observations of Chinnappa Reddy, J. in Union of India and Anr. v. Cynamide India Ltd. andAnr., [1987] 2 SCC 720 at p. 736: "We do not agree with the basic premises that price fixation primarily affects manufacturers and producers. Those who are most vitally affected are the consumer public. It is for their protection that price fixation is resorted to and any increase in price affects them as seriously as any decrease does a manufacturer, if not more." In M/s. Gupta Sugar Works v. State of U.P. and Ors., [1987] Supp. SCC 476 at p. 48 1 one of us (Jagannatha Shetty, J .) stated: "In this view of the matter, the primary consideration in the fixation of price would be the interest of consumers rather than that of the producers." The Court has neither the means nor the knowledge to reevaluate the factual basis of the impugned orders. The Court, in exercise of judicial review, is not concerned with the correc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen there is found to be a rational basis for the conclusions reached by the concerned authority. As stated by Justice Cardozo in Mississippi Valley Barge Line Company v. United States of America, 292 US 282-290, 78 Led 1260, 1265: "The structure of a rate schedule calls in peculiar measure for the use of that enlightened judgment which the Commission by training and experience is qualified to form ..... It is not the province of a court to absorb this function to itself ..... The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body". It is a matter of policy and planning for the Central Government to decide whether it would be on adoption of a system of partial control, in the best economic interest of the sugar industry and the general public that the sugar factories are grouped together with reference to geographical-cum-agro-economic factors for the purpose of determining the price of levy sugar. Sufficient power has been delegated to the Central Government to formulate and implement its policy decision by means of statutory instruments and executive orders. Whether the policy should be altered to d....